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Treasury supports UK’s new Global Anti-Corruption Sanctions Regime
On April 26, U.S. Treasury Secretary Janet Yellen issued a statement in support of the UK’s new Global Anti-Corruption Sanctions Regime that will provide the UK with authority similar to that under the U.S. Global Magnitsky program, which targets human rights abusers and corrupt actors. Yellen noted that the UK’s new regime will provide opportunities for the two countries “to take complementary sanctions actions where appropriate,” and magnify the impact of each country’s respective sanctions. She further noted that “U.S. sanctions are more likely to compel changes in behavior and disrupt threatening activities when pursued in concert with our allies—carrying a more forceful economic impact by disrupting access to the international financial system—and sending a stronger message to malign actors by virtue of our solidarity.” Emphasizing that sanctions are just one tool to combat corruption, Yellen stressed that Treasury will support global efforts to, among other things, provide guidance to financial institutions and engage with “foreign and private sector partners to encourage reforms, ensure corrupt officials are held accountable, and see that vulnerabilities to corruption are addressed.”
OFAC sanctions Burmese timber and pearl enterprises
On April 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14014 against a Burmese state-owned entity responsible for timber and pearl exports from Burma. According to OFAC, the timber and pearl industries are “key economic resources for the Burmese military regime that is violently repressing pro-democracy protests” and is responsible for the continuing deadly attacks against the Burmese people. As a result of the sanctions, all property and interests in property of the entity in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific license.
OFAC issues Belarus-related General License 2H
On April 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License No. 2H (GL 2H) to authorize a “45-day wind down period” for nine Belarusian entities to enter into certain transactions. GL 2H replaces and supersedes in its entirety General License No. 2G and authorizes all transactions with any entities that are owned by 50 percent or more by the nine named entities. All property and interests in property of these entities, if blocked, remain blocked, and U.S. persons must report authorized transactions or any series of transactions exceeding $50,000 to the U.S. Department of State no later than 30 days after execution. The authorization expires on June 3.
U.S. steel manufacturer settles with OFAC for violating Iranian sanctions
On April 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $435,003 settlement with an Oklahoma-based steel manufacturer to resolve alleged violations of the Iranian Transactions and Sanctions Regulations. According to OFAC’s accompanying web notice, between 2013 and 2018, the company allegedly engaged with a third-party Iranian engineering company on at least 61 occasions to import engineering services. The company asserted that, while several senior officials “were involved in the process of approving each transaction and issuing checks to the Iranian engineering company,” the company’s “lack of familiarity with U.S. sanctions requirements caused its management to allow the Apparent Violations to continue until a new Chief Executive Officer was hired in October 2018.” Once management learned of the alleged violations, the company stated it ceased working with the Iranian engineering company and took several remedial measures to prevent the conduct from reoccurring.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the company failed to conduct basic due diligence regarding the transactions with the Iranian engineering company; (ii) senior management “had actual knowledge” that the company was outsourcing work to the Iranian engineering company; and (iii) the conduct caused more than $1 million in benefits to Iran.
OFAC also considered various mitigating factors, including that the company (i) had not received a penalty notice from OFAC in the preceding five years; (ii) voluntarily self-disclosed the alleged violations and cooperated with OFAC’s investigation; (iii) ceased the conduct at issue; and (iv) took remedial measures, including terminating the employee responsible for initiating and overseeing the transactions at issue, and developing and implementing an export compliance policy to provide, among other things, staff training and a requirement that all international contracting opportunities be approved by the company’s president.
FINRA fines firm for failing to follow its own AML policies
On April 16, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), which resulted in a $250,000 fine against a New York-based trading firm for allegedly failing to establish an anti-money laundering (AML) compliance program and a tailored Customer Identification Program (CIP) over a four-year period, which permitted potentially suspicious trading out of accounts based in China and other foreign countries. As a result, the firm allegedly failed to detect red flags concerning potentially suspicious activity and failed to investigate or report the activity in a timely manner. According to FINRA, the firm’s failure to set up a “reasonable” AML program and a tailored CIP between September 2016 and September 2020 resulted in the failure to “detect, investigate, and respond” to red flags in four related accounts, including suspicious activity related to: (i) possible trading of low-priced securities and other activity connected to the foreign accounts; (ii) transactions that lacked business sense or apparent investment strategy; (iii) a customer account that had “unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity”; and (iv) a customer account, which showed an unexplained high level of account activity with very low levels of securities transactions. FINRA stated that although the “firm’s written procedures required the use and review of exception reports to assist with the identification of red flags for suspicious trading and suspicious money movements, they did not identify any exception reports that the firm would use and did not describe how supervisors should use them.” The firm neither admitted nor denied the findings set forth in the AWC letter.
DOJ charges unlicensed money service business with AML violations
On April 14, the DOJ unsealed an indictment charging two defendants with allegedly failing to maintain anti-money laundering (AML) controls, failing to file suspicious activity reports (SARs) with the Department of Treasury, and owning and operating an unlicensed, unregistered money transmitting business in violation of the Bank Secrecy Act (BSA). According to the DOJ, the defendants allegedly conducted high-risk transactions through their unlicensed money transmitting and money service business via a New York credit union, “caus[ing] the transfer of more than $1 billion in high-risk transactions, including hundreds of millions of dollars originating from foreign jurisdictions.” The DOJ alleged that while the defendants represented to financial institutions that they were aware of the risks associated with the high-risk business and would conduct the required, appropriate BSA/AML oversight, one of the defendants “willfully failed to implement and maintain the requisite [AML] programs or conduct oversight required to detect, identify, and report suspicious transactions.” The defendants have been charged with failure to maintain an AML program, failure to file SARs, and operating an unlicensed money transmitting business. The indictment seeks forfeiture of any property constituting, or derived from, proceeds obtained directly or indirectly as a result of the alleged offenses.
OFAC sanctions Mexican cartel commander
On April 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against a regional commander responsible for controlling territory belonging to a major Mexico-based drug trafficking cartel. OFAC noted that the action was taken in coordination with the State Department and DOJ, which unsealed an indictment against the sanctioned individual. Acting Assistant Attorney General Nicholas L. McQuaid emphasized that the designation and indictment “show that the [DOJ], together with our law enforcement partners, will aggressively investigate and criminally prosecute the violent cartels and kingpins who import illegal drugs into our communities.” According to OFAC, this designation is the agency’s fourteenth action taken against the Mexico-based drug trafficking cartel (see previous InfoBytes coverage here). As a result of the sanctions, all property and interests in property belonging to the sanctioned individual subject to U.S. jurisdiction are blocked and must be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.
Biden order authorizes sanctions authority covering Russian activities
On April 15, the Biden administration announced several actions intended to block property with respect to specified harmful foreign activities by the Russian government, including the issuance of Executive Order (E.O.) Blocking Property With Respect To Specified Harmful Foreign Activities Of The Government Of The Russian Federation. Specifically Directive 1 to the E.O. provides that, at the determination of the acting director of the Office of Foreign Assets Control (OFAC) and in consultation with the State Department, U.S. financial institutions are prohibited from:
- Participating “in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation”; and
- “Lending ruble or non-ruble denominated funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.”
These actions are prohibited as of June 14, 2021, “except to the extent provided by law or unless licensed or otherwise authorized by [OFAC].” For purposes of the Directive, a “U.S. financial institution” is defined as “any U.S. entity (including its foreign branches) that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or other extensions of credit, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent.” This term also includes branches, offices, and agencies of foreign financial institutions located in the U.S., but does not include such institutions’ foreign branches, offices, or agencies.
In conjunction with the issuance of the new E.O., OFAC also published several new and updated FAQs and added several individuals and entities to OFAC’s list of Specially Designated Nationals. The new additions include sanctions taken against (i) several Russian technology companies that support the Russian Intelligence Services, which OFAC stated are responsible for having “executed some of the most dangerous and disruptive cyber attacks in recent history”; (ii) five individuals and three entities related to Russia’s occupation of the Crimea region of Ukraine pursuant to E.O.s 13660 and 13685; and (iii) 16 entities and 16 individuals that attempted to influence the 2020 U.S. presidential election at the direction of Russian government leadership.
As a result of the sanctions, all of the property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons, as well as any entities that are owned 50 percent or more by the designated persons, are blocked and must be reported to OFAC. Additionally, OFAC regulations generally prohibit U.S. persons from participating in transactions with the designated persons unless exempt or otherwise authorized by an OFAC general or specific license. In its announcement, OFAC further warned that “foreign persons that knowingly engage in a significant transaction or transactions with the persons designated today may themselves face the risk of designation,” and emphasized that “financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals may expose themselves to secondary sanctions or be subject to an enforcement action.”
Firm settles with FINRA on AML compliance violations
On April 12, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), fining a New York-based member firm for allegedly failing to implement a reasonable anti-money laundering (AML) program for transactions involving low-priced securities. The firm also allegedly failed to establish a due diligence program for monitoring and investigating “potentially suspicious transactions.” According to FINRA, the firm and its principal failed to, among other things, (i) take reasonable steps to establish and implement an AML program tailored to the firm’s new business line (and particularly the deposit and liquidation of microcap stocks), resulting in the firm’s failure to identify or investigate potentially suspicious transactions; and (ii) provide meaningful guidance regarding how the principal was to identify or review red flags specific to the customer account business. In addition, FINRA allegedly found that the principal “repeatedly” permitted deposits and re-sales of microcap securities despite missing documentation. As a result, the firm and its principal violated FINRA Rules 3310(a) (Anti-Money Laundering Compliance Program), 3110(a) (Supervision) and 2010 (Standards of Commercial Honor and Principles of Trade).
OFAC amends FAQs on Sudan sanctions
On April 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published amended frequently asked questions related to the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) and the Sudan Program and Darfur Sanctions. FAQs 97 and 98 clarify TSRA licensing application options and steps, which require that applicants provide all relevant information for parties, including financial institutions and purchasing agents, that may be involved in the proposed transactions. FAQ 500 explains that persons are no longer required to obtain specific licenses from OFAC to export or reexport agricultural commodities, medicines, or medical devices to Sudan. Finally, FAQ 836 states that U.S. persons are no longer prohibited from engaging in transactions with respect to Sudan or the Government of Sudan that were previously prohibited by the Sudanese Sanctions Regulations, 31 C.F.R. part 538.